We give you the text of this interview:
Technologies humanise banking
How do technologies affect the banking business today?
Over the last few years, banking has become more human at the account of technologies. If earlier banks looked like bureaucratic offices with lots of unnecessary papers, formalities and so on, today the face of retail and also corporate business become more human. The generation of people, who are not fond of this bureaucracy, has already grown up. They want everything to be more interesting, more human, and banks change accordingly.
Therefore, more and more new participants like Rocketbank, TKS and others having a more human face are appearing in Russia and in Europe, on the one hand. On the other hand, large monsters like Alfa-bank have also seriously changed, and have become more human. This is happening thanks to new technologies.
It is a common belief that digitalisation kills personal communications. Where is humanism here? Earlier, people came to the bank’s office, talked to real people there, but now they are looking at their computer screens…
Why have Facebook or VKontakte gained such popularity? There were tonnes of means of chatting, talking over the Internet before. There were all kinds of chat rooms, forums and so on, but only Facebook and later also VKontakte have made communication more like the one you use, when you go to a club or to your friend's house. Communication is organised in such a way that people stopped to notice the electronic layer in the form of a social network. It is implemented in such an invisible and transparent way that when people talk to other people using this technology, they do not notice it. Technology has become invisible.
The same is happening with banking. Banks earlier had a set of forms at their counters, which had to be completed, but now all this has almost gone thanks to technology. And people – customers and employees of banks – think about the very nature rather than bureaucratic procedures.
Trends in technology
If we are talking about banking technologies, what do you believe to be the most topical? What do you stake on now?
We have several main lines. The first line is mobility, everything turns into mobility now. And we make a lot of efforts to make our mobile bank as convenient and invisible in use as social media. When people socialise on VKontakte, Facebook, they do not think about the application itself. Also, if people have a mobile bank, their primary thoughts are about payments, what has to be done, rather what their banking application is. We are trying to make technology as invisible as possible.
The second line is data. We have lots of data to service customers well. This data is collected at the request of regulators, compliance, or just during the sales process. We must know how to process and use this data correctly. This is what the world calls Big Data today. And we are investing money into this line too.
The third line is the automation of processes. Another line, which is just emerging, is related to a new paradigm of banks’ work – the use of new technologies such as blockchain, which can replace interbank networks (SWIFT, etc).
When someone is talking about financial technologies, innovations, they usually mean services for private individuals first. How demanded are technical novelties and innovations in the corporate sector?
We presume that people are working with accounts in the bank – regardless of whether it is a private or a corporate account. We always deal with people. If this is a corporate account, that simply means that more people have access to it. As a rule, there are users with different roles: accountants, business owners, directors. It all depends on the complexity of the company. And our primary goal is to provide ways of comfortable work for all these people representing our corporate customers. Corporate customers should have the possibility to set up a scenario, with which they can work conveniently, distributing roles. It is a standard situation in a corporate environment, when there is some plug of authorisations, within the scope of which it is necessary to set up work with company money in such a way to minimise customers' risks, using the technologies available in the bank.
On the other hand, we are trying to make the use of accounts maximums being clear for all the participants of the process, so that there is no need to have special training before using the bank. We need help from employees to continue fulfilling the same functions they fulfil in their companies, also in our bank, without becoming Internet banking specialists.
Our efforts are focused on making all these people work comfortably. For example, employees need to identify themselves, when they go to a bank. People usually use some identifiers, pendants and so on. Now we have saved people the trouble of using pendants. We have agreed with a token manufacturer, and made its virtual analogue, which is integrated into a mobile application. It should be noted that they can be used online and offline.
Do you have these tokens for Android?
Of course. We use quite an interesting safety technology, which does not store keys in the phone.
I asked about Android, because it is a common belief that Android is the most leaky environment as regards security. Any bank, which gets there, is doomed to be compromised...
The technology we use is built in such a way that it presumes that the device, where its security keys are, is already compromised or open. Therefore, the security is structured in such a way that you can steal this secret key, but you cannot use it in some other place.
Cybersecurity is the main stop factor for the development of online banking. What do you do to protect your users?
- There are two aspects from the point of view of cybersecurity – logical security and technical security. Logical security is when processes are structured in such a way that they are secure. We draw the attention of our customers to the most dangerous points in operations.
Let me provide you with an example. If people top up their cards remotely, this is a secure process. This is a low-risk operation. If people transfer money to a third person outside the bank, this is an operation with a much higher risk. We presume that low-risk operations are much less demanding to authorise than high-risk operations. If people perform high-risk operations, authorisation uses a more complicated algorithm.
Technological security is construction of a secure infrastructure, coding means using specialised equipment and rules of its operation.
Big Data, work with data
Frankly speaking, Big Data often is just an attractive slogan, which means a wide variety of things. What do you mean by that? How do you really use it?
As a rule, the most interesting thing regarding Big Data is a well-structured question. And here, the bank’s business, which structures these questions, can help you. The dialogue in our bank is structured in such a way that, when such questions are asked, we can provide an adequate answer to them. We can distinguish two situations. The first is when the business has a specific question. For example, they want to profile their customers by ways they spend their money from savings cards: some of them drive their own cars, some gamble, some go to supermarkets… Having received this data, they can offer certain categories of customers one product or another.
The second situation is when we do not know for certain, what the result should be, when we must use all the possibilities and all the information we have. As a rule, this concerns compliance-related matters, for example, when we have an ongoing investigation related to the activities of a complex customer. In this case, we use all possible transaction links, which can be identified between people to draw a conclusion regarding risks in relation to this customer. Some processes are automated in such a way to recommend, with certain periodicity, or based on certain rules, which customers would like to use certain products. When a customer contacts an operator, the operator can look at the customer’s profile, in parallel, he sees what things might be of interest to this customer. This does not mean that the operator must offer them, yet in a matter of seconds he learns a lot about the customer without asking the customer stupid questions or offering something which the customer is not interested in.
Do you use some special purchased software for that? Or have you written something of your own?
We write everything ourselves, which includes our know-how in business, and we buy systems, which have already become commodities (standard, established “products”). For example, we purchased our data visualisation system and the system which helps us to work with data, and we have our Data Warehouse which is operating on standard technologies. We have a core from a well-known vendor of banking systems, but we build ourselves everything related to servicing our customers.
Banking IT and innovations
Banking IT is such an interesting topic. Banking systems are rather heavy technologies, complex programs, it is hard and expensive to change them. Yet life is consistently asking for some changes – to add new services, to establish new slices of analytics. So we face some sort of contradiction – it is hard and expensive to change the banking system, but these changes are required. How do you get out of this?
We have everything distributed into layers. There is a bank core, which is operating on the “heaviest” corporate technologies. The difference from corporate technologies is that they are engineered in a very qualitative way, they are perfectly scalable and “digest” data well. These systems have strict operating rules, you cannot treat them as you treat your gmail inbox – you do not turn a hair until your 4 gigabytes are full. We control threshold values, archive and reorganise data every day. When you do all these things, your system will work in a very accurate way, like a clock, and can be scaled, when the load is increasing.
The number of principle business scenarios in the banking business is small – to borrow money, to lend money, to transfer or exchange money into other forms of assets and to calculate everything accurately. All financial products are built around more or less standard things at core level. However, there is a huge number of details – for instance, there can be several dozens of ways to calculate interest only.
Then, there is a layer, on which the customer service logic is built. It is more open, written on fresh technologies and is changed more often and more easily. We have almost unlinked this layer from the core, and there is much more freedom of movement here. We can involve outsourcers, or include some ready-to-use products.
We have come to the topic of financial and technical innovations, to interaction with outsourcers, startups. The attitude of banks to startups, innovators can vary. Some say that they are useless show-offs wearing yellow glasses and drinking smoothies, some support them and try to use them in their businesses. What is your position?
There are certain panic modes in connection with the financial and technical aspect in the world of finances. Something is always happening in the financial and technical area, a lot of new technologies appear. Everybody is waiting for something to happen – for a banking Uber or Facebook to emerge, but this does not happen. There is some sort of hysteria – we need to buy everything, to invest in startups.
Yet, the world keeps working according to old rules. Payments cross Europe using standard bank transfers like SEPA Credit Transfer, Direct Debit and SWIFT. Yes, a whole layer of companies, which eat off transaction business from banks, is emerging, but all these payment companies still cannot survive without banks. They are “plugged” into one or several banks somewhere. They cannot function without the banking system, at least in terms of technology.
We have a blockchain technology now, which, in theory, allows such companies to work independently. We do not have such precedents yet. We are curiously observing this, we are also eager to see the first practical scenario. On the other hand, we are interested to be a backoffice for such companies, which need an exit route to real money. We have a range of payment card APIs for that – “sockets”, which such companies can use to connect to us.
If they make P2P transfers, when you need to deliver transferred money to cards or bank accounts, we have an API, which they can use to deliver this money. If they need to withdraw money using SEPA or SWIFT, we have an API, which they can use to do that. We have all the required interfaces to work with such customers. We would like to increase our flow of transaction, and they generate this flow.
How do you work with them? Do you provide them with APIs, create teams with them – how do you do this? Do you invest into them?
We do not have a standard approach. We support events for startups, try to attentively observe startups, which are related to the financial and technical area. These guys present themselves, show their ideas. If these ideas seem close to us, or we think that it would be interesting to try, we agree on cooperation conditions with them.
We held the Rietumu FinTech Challenge in April jointly with TechHub Riga, in which about ten nominees from different countries participated. A Latvian company providing P2P crediting services won. Participants also included guys having a startup idea to issue invoices and pay these invoices using credit cards – swipe.lv. We agreed with them that they would work independently, and we, as a bank, would help them to resolve legal and technical matters. We have an agreed plan, and we are working according to it.
You have mentioned invoicing, P2P transfers, blockchain. Which areas of financial and technical innovations do you believe to be promising? What is your attitude to PFM – Personal Financial Management, for instance?
PFM is not about us. As a rule, people having money which needs management, have accounts in different banks. It is unlikely that anyone would download data about balances in other banks to their bank. This does not sound logical. Therefore, it seems to me that this niche does exist, but I like other formats of it. There is Mint, a US company, which has the possibility to connect to all banks, where you have money or portfolios, and then prepare some aggregate summaries of this data.
Generally, blockchain is the most promising technology in the financial and technical area, because it resolves the matter of the electronic transfer of values. When the Internet appeared, it resolved the matter of transfer of information over distances, and now blockchain is resolving the matter of the transfer of values over distances. Yet the question still is how to use this technology. We can transfer a value, but it is still a problem to make sure than this technology is used in a legitimate way.
I have read that your bank is being constantly recognised to be the best asset management bank.
As for asset management, we are trying to make it more interesting than others. Since last year, we have had Rietumu Asset Management. It has quite interesting products, which allow us to think about asset management, who has placed their money before on deposits only. We attempt to make this method of investment of funds more understandable even to people with a low bar, such as starting from 50 to 100 thousand US dollars. We provide them with the possibility to use the asset management service to place their free funds. As a rule, it is impossible to allocate an individual portfolio manager for such amounts, but we have an automated system, which allows people to build their own portfolios, taking into account our established asset management principles. An example of such a system's work is shown on our website: http://www.rietumu.ru/investment#ram
And all this thanks to new technologies, too?
Yes, our bank has the bank's liquidity management experience. There is a treasury, which has been managing bank liquidity for over 20 years. It has a good track record. We have taken the liquidity management logic used by the treasury, and packed it into the methodology, which we offer to our asset management customers.
E-commerce, Internet acquisition
As far as I know, you are working with e-commerce actively. What do you offer in this area and what is important for you in e-commerce?
Today, increasing numbers of purchases are made using e-commerce, using electronic and payment cards on the Internet. At the same time, user scenarios stop being as trivial as before. For example, let’s take the scenario of Uber in e-commerce. Users download an app, link their credit card. When the credit card has been linked, they call a taxi, a taxi comes, they go somewhere, get out of the car, say “Goodbye” to the taxi driver. And that’s it, no money. All the settlements are in the background, are made from the card linked to the user account in Uber. Users do not make any purchases over the Internet, they use taxis. But there is a flow of transactions. This is the scenario, when the technology becomes invisible.
There are plenty of mediators handling payments, doing Internet acquisition in e-commerce. And these are not only banks…
Banks are part of that chain, which allows you to get money from your card. There is a Visa, a MasterCard network, which ensures real-time authorisation of transactions. Everybody wants to be sure that the money will be received. Visa and MasterCard make this system trusted. But it does not work without banks. Banks make settlements. They allow the money to move.
Our bank is acting like an acquirer. Our role is to see that the trader promptly receives information that the authorisation was successful. And to see thatthe trader receives these funds the next day or according to the agreed rules. We are their money guides.
By the way, do you see yourself as a bank or more as an IT company, like, for instance, Tinkoff?
Of course, we are a bank. We only have IT for the automation of our bank’s work. There are many things for which IT is responsible: processing of transactions, security of remote access and so on. However, our main function is a bank. We handle money.
Google, for example, is also transferring money. What is the difference?
They are still doing it with the help of banks. A card infrastructure is behind all the initiatives of Facebook or Google, when money is transferred between email or chat users, all on this system. I think that they have plans to create their own infrastructure. However, right now everybody is using our infrastructure to move their money.
Where will you move further? What are your plans?
We are investing serious money into the development of processing business. We are an acquirer. We are also developing the processing component. This year, we have launched our own processing centre, DECTA.
We are also developing a brokerage line to work with the insurance market as easily as with payments and currencies. To help buy Tesla, Alibaba, Facebook – any securities as easily as to make a payment or a money transfer. Current deposit rates at the European market are somewhere at zero level, so people should be provided opportunities to place their money. We are actively working on this.